Tom Cloud: The phone is ringing off the hook. Our customers are less concerned with the fiscal cliff being kicked down the road than with the fact that the debt ceiling is just a couple of months away. I’m also hearing a lot of complaints about president Obama cutting the fiscal cliff deal and then immediately charging taxpayers $3 million to take him and his family to Hawaii.

One other thing that’s leading a lot of people to look at precious metals is the recent announcement that Japan is buying almost as many US Treasury bonds than China, and now has over $1 trillion worth. When those two decide to sell, which they will eventually, it will be a nightmare.

DC: Didn’t we just raise the debt ceiling?

TC: The last debt ceiling battle was in August of 2011, and they said it would last two-plus years. And now they’re having to raise it again already. A Korean economist named Dr. Yoo published a chart showing an almost perfect correlation between the debt ceiling and gold. If this relationship holds, raising the debt limit by another $2 trillion would put gold at $2,000 an ounce.

DC: It seems like in the past few months the world’s governments, Japan and the US in particular, have given up trying to control spending and debt, and are now all about jobs and inflation. Do your customers share this perception?

TC: Absolutely. The public is realizing that there’s not going to be a recession. People were uncertain about the health care bill’s impact and the slowdown in the US, but lately every announcement is about asset purchases and debt monetization. The Fed is up to $85 billion a month, and Japan’s new leader seems to want the same thing. So the government isn’t shutting down and the can is being kicked down the road. All the pieces are in place for an up-leg in precious metals.

DC: Who’s doing the buying right now?

TC: Smaller investors haven’t started piling in yet. I’m hearing mostly from big guys, seeing some of the largest sales in my career in the past month. We’re getting orders from banks that I haven’t seen in a long time. And countries. I actually made a sale to a country this week, with delivery to their embassy. The big, smart money seems to get it.

It certainly seems logical that the “the pieces are in place for a gold rally” but there have been many circumstances in recent years that “should” have vaulted prices higher but didn’t. Why will investors buy gold instead of Treasuries after this debt ceiling increase, unlike last the time? This time is different? Then why did the stock market rally (and gold sell off) just this week when it became clear that US deficit spending will continue unabated?

I don’t doubt that efforts are made to repress gold prices by the global banking cabal and if so then I would expect the same thing to happen when (not if) the US debt ceiling is raised and Japan starts monetizing its own government debt. For that matter, I don’t think anyone who is paying attention has any doubt that those two events alone are inevitable and so one could argue that that is already built in to the gold price right now. (I suppose its possible that a weaker yen implies a stronger dollar so that could limit the US gold price.)

The Republicans’ threat to not raise the debt ceiling without meaningful concessions of spending reductions and controls are a complete bluff and everybody knows it. Pathetic. And “Abe” is from an old political family so his vow to lower the value of the yen via “money printing” should be taken seriously because he has the political clout to do it. Funny that Asian and emerging market equities began rising as soon as Japan changed its ruling political party, presumably because of expectations of a weakening yen and Japanese price inflation, yet gold sold off.

Until gold is considered an actual alternative currency and not just another commodity with limited utility by the vast majority of the world’s investors, or until some “black swan” event occurs that causes a stock market sell off, or until investors start thinking conceptually and proactively, I will be pleasantly surprised to see gold’s value do much more than just steadily grind higher next year. I’d be nervous if I didn’t own any, but I’m not convinced it’s such a screamin’ deal to buy more at this time. (On the other hand, if you’re new to all this and probably would have bought gold/silver a few years ago had you known, then I do think it’s prudent to buy some now. At worse you’ll simply be early and I highly doubt you will ever lose purchasing power no matter what happens going forward. There are just too many out of control issues going on that will inevitably ignite major financial problems that will very possibly trash most wealth that depends upon a viable counterparty.)

By the way, gold mining shares are even more vulnerable to price suppression schemes by the monetary authorities, and even just hedge funds looking to take advantage of any big action. That’s because it’s such a small capital market. It’s the same problem silver has (besides commodity trading laws not being enforced, and there are no equivalent laws concerning equities or ETFs.)

stonehillady

Mining Gold is very expensive, if Banksters keep trashing Gold, means the mining will stop all together, then watch what happens ! As it is now, you can’t buy physical silver without waiting till it’s mined so they are still selling comex on NO Inventory same with Gold !

John Gonzalez

Thanks for the update, Tom and John.

No doubt, this fiscal/financial madness has carried on much longer than I would have ever guessed.

Makes sense, that 30 year Treasury rates are moving up smartly, now. They have done so in the past, and reversed course, however.

But, my gut sense, and based rumblings that I hear in the background, is that this will be a breakout year for gold and silver.

“When those two decide to sell, which they will eventually, it will be a nightmare.”

They will never sell. Because they know that would be suicide.

Agent P

Bruce C has the correct ‘pulse’ of the PM market at this time I believe. This is really not difficult to figure out, let alone ‘divine’ by all manner of charting analysis based on suppositions and assumptions that reside somewhere in a parallel universe… The cold hard fact of the matter is that it is of Utmost importance for a nation whose economic and political status quo relies Absolutely on confidence in its currency, that ‘confidence’ remain… Gold – with its history of monetary discipline presents a Direct, real & defined as well as psychological Threat to that status quo, plain & simple. My view is line with Grampa Jim (Sinclair), in that the ‘goal’ of our fiscal/monetary authorities is not so much to diminish the time-honored prudent aspects of gold, but to rather Control its ascendency in a manner which is perceived to be unimportant – or ‘fringe’, to the average American/Investor/Institutional Investment house.

If you remember testimony given by the Fed chairman some months back, in which he was being interviewed by Congressman Ron Paul, you may recall a moment when rep. Paul asked the Chairman what he thought of gold in terms of central bank holdings and its role as money, with the answer from Mr. Bernanke being a feigned look of bewilderment and a retort of (paraphrasing), ‘I guess tradition’…?

A clearer moment-in-time of just how blatant the desire to remove any credibility regarding gold’s role as a monetary standard, there never was…

$2000/oz. gold, gradually inching up – almost imperceptibly, can be allowed. Say from this point forward into 2015 or so as a crude yardstick. Of course, that certainly doesn’t mean they won’t continue to try and ‘jawbone’ gold into further obscurity, but the ability to do that now in the face of obvious beggar-thy-neighbor monetary policy from all major western economies is waning. $2000/oz. gold 6 months from now however, would mean near certain disaster for the bond market. Perceptions of $value for even the luddite would most certainly change with gold eclipsing and remaining at or above $2k/oz. for any length of time, if it were to arrive in even 1 year’s time from now.

With a veritable ‘lock’ on the yield curve, real interest rates and a government-media-Fed trifecta of M.O.P.E. (attributes again to Grampa Jim)’ of gold being the province of ‘fringe’ types – or being held for ‘tradition’, it is not likely that $2000/oz. gold will disrupt the goldilocks path of which has been cleared for our entertainment anytime soon, but that assumption automatically and dangerously discounts any sort of event that might act as a triggering mechanism. Foreign policy blunder…? Bank failure/s…? Threat of war…? Do not rely on unemployment numbers going anywhere (but flat or up) as a possible trigger. That area of information management has been sealed off as well… Keep an eye on foreign markets/events/movements and news to be your guide.

Tony D

It is impossible to divine what will happen in a market that is so badly manipulated by paper shorts. Normal rules and logic don’t apply right now. There is a discontinuity between paper and physical gold that means price prediction is actually impossible right now, fundamentals don’t apply. This article may well be a bullion dealer talking his book. Bruce is right that fundamentals and events should have led to price rises by now. Still, one way or the other it will pay to have PMs one day, it’s just hard to say when.

Markets are much more random than people think. Gold prices should be higher, because of this or that, but they are not. If prices move below the mean, market technicians pronounce that the market is oversold. Many think prices are attached to some magic rubber band that catapults them back to the mean and beyond. Yet there is no such rubber band. Prices are just as likely to remain below the mean or even move further in the ‘wrong direction’ as they are reverting back to the mean. Sure prices will eventually revert to the mean, but it is not predictable when. Predictability would guarantee sure trading profits; and such a market cannot exist.
The fundamentals for commodities in general and precious metals in particular have not been more compelling since the 1970s. So the best course of action is to put money into commodities and remain patient. There will be (long) stretches of time when the market moves against our positions, but if we are correct about the fundamentals we will eventually come out ahead.
There may be even a Black Swan. An event where the market moves in our direction in a sudden big jump. Then again this event may never happen, which is another Black Swan.